Abstract: How do increased debt servicing costs, resulting from monetary policy tightening, impact household consumption? Understanding this cash-flow effect is crucial for assessing the overall and disparate effects of monetary policy. By utilizing panel microdata on all mortgage holders in Israel and leveraging quasi-exogenous variation in exposure to adjustable-rate mortgages (ARMs) due to a regulatory shift, we analyze household consumption reactions. Our results indicate that the mortgage cash flow channel caused a 3.6% reduction in households consumption following a 4.65 percentage points policy hike, predominantly affecting mid to lower income households. These results underscore the significant role of the mortgage cash-flow channel in the transmission of monetary policy, with important consequences for both economic stability and inequality.
Discussant: Alessia DeStefani, International Monetary Fund
Marco Giacoletti, University of Southern California
Abstract: We study the relationship between the level of interest rates and the share of individuals
who own rental properties. Using unique tax filing data from Australia, we show
that declines in interest rates over the period between 2006 and 2019 have coincided
with a substantial increase in the share of landlords, in particular among middle-income
retirement-age individuals. We use both empirical tests and a survey of Australian landlords
of our own design to explore different mechanisms, and find evidence consistent with
reaching for income. Retirees have a preference for income-paying assets. As rates decline,
they substitute interest income with rental income. This reaching for income behavior
has aggregate effects on the homeownership rate, and on the exposure of retirees’ income
streams to local shocks.
Discussant: Barry Scholnick, University of Alberta
Brad Cannon, State University of New York-Binghamton
David Hirshleifer, University of Southern California
Joshua Thornton, Baylor University
Abstract: Using friendship data from Facebook, we study the effects of three aspects of social capital on household financial behavior. We find that the most important measure of social capital in explaining stock market and saving participation is Economic Connectedness, defined as the fraction of one’s social network with high socioeconomic status. One standard-deviation greater Economic Connectedness is associated with 2.9% greater stock market participation and 5.0% greater saving participation. Compared to Cohesiveness or Civic Engagement, Economic Connectedness explains more than 6 times the variation in stock market participation and more than 4 times the variation in saving participation. Using data on nonlocal friendships, we provide evidence supporting a causal link between household financial behavior and the income of one's friends. Furthermore, we provide evidence that greater opportunities for social interaction with wealthy individuals is associated with increased stock market and saving participation.
